Life Insurance and Debt

Life Insurance and Debt

Written by Caitlin Wood
Last Updated April 27, 2021

Written by: PolicyMe

Just as it’s hard to identify the right time to have kids, it can be tricky to figure out the right time to buy life insurance. This is particularly true when purchasing life insurance competes with other financial priorities, like paying off existing debt or saving for retirement. (If you know where we can find a crystal ball, let us know!)

So let’s talk about the reasons to wait to buy life insurance (and some reasons not to).

Waiting To Buy Life insurance Is Okay – In Some Circumstances

Sometimes, the burden of the debt is, well, yours. You went to university, you racked up student loans, and now you have to make your payments every month. Money is never free, after all.

But if you die, who’s in charge of that debt?

Well, as long as you don’t have a cosigner on your loan, mortgage, or credit card account, the debt goes away if something happens to you. Yes, you read that correctly—it really will disappear just like that.

However, if the debt is “joint,” the survivor (usually your parents or your partner) will have to pay the balance of the account. This is common with mortgages or joint credit card accounts.

Why Not Wait – Life Insurance Is A Different Kind Of Purchase

Having debt is one of the main reasons Canadians should have life insurance.

The reality is that life insurance is even more important to have while you have that debt. As a result, you shouldn’t put off buying life insurance until you pay off your debt.

An Essential Purpose Of Life Insurance Is To Protect Your Loved Ones From Your Debt

Your debt may seem like a heavy burden on your family today. But imagine if there was suddenly one less person in the picture to help carry that burden.

If your income is supporting your family, think about what your family’s financial situation would be if your income disappeared.  If you have debt, holding off on buying life insurance makes that debt even more dangerous to your family than it is now. For this reason, one of the main reasons to buy life insurance is because you have debt.

Insurance Doesn’t Need To Be As Expensive As You Might Think

It may seem like a cruel joke that you have to spend money to protect your family against your debt. But the truth is that life insurance doesn’t cost as much as you may think. It’s well known that most Canadians believe that life insurance costs 4x more than it does. For example, a 20-year, $500,000 term life policy costs around only $35/month for a healthy 30-year-old male. For most people, that can be enough to cover your debt. Go ahead and breathe that sigh of relief!

How Can You Save On Life Insurance?  Here Are Some Tips:

1. Buy term insuranceAs you get older, your family’s future expenses typically decrease. For example, your mortgage gets paid off (finally!), and your kids become independent. (Yes, it really will happen one day.) As these expenses drop, your life insurance needs begin to decrease too. This usually occurs around retirement. That’s why temporary (term) life insurance is almost always the best option for families looking for affordable protection.

2. Get the right amount of coverage – Get the right advice to make sure you aren’t overprotecting yourself and your family. Consider how your family depends on you financially and how they would adjust if you died. Better yet, complete PolicyMe’s free life insurance checkup to figure out how much coverage you need without overprotecting yourself.

3. Compare quotes – You don’t want to overpay for your policy, and comparing plans can ensure that you’re getting the best deal. Use PolicyMe to get quotes for the Canadian insurers you know and trust.

Now that you know more about life insurance let’s get you protected!

Rating of 5/5 based on 5 votes.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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